In other words, the QQQ short trade was ill-founded because the market says so. The F.A.N.G. are back with a vengeance. I may have to cover QQQ today. How do you fight that kind of momentum? How many times have I parroted that the trends are up? This was an example of trying to out think the market instead of being instructed by it.

As for the market seasonal, it is what it is and perhaps regular stocks – those not protected by some algo program that flashes ‘buy F.A.N.G. on every dip’ – will weaken in line with this late July-Sept. But we should be aware as well that the seasonals are 30yr averages and while this appears to be a late stage bull market, ending dynamics are often a blow off as opposed to a roll over.

In other words, the cycle and the Fed Funds/2yr yield could each be signaling a top by the end of this year but the ending could include a manic spike upward first (ref. Nasdaq in 1999-2000 and silver in 2011) as opposed to a roll over (ref. Dow and S&P 500 in 2000).

So the seasonal pattern is a valid consideration, but it is subordinated to the fact that the current situation is its own unique animal.

In that regard I’ve raised already high cash levels (again, my personal situation and orientation dictate that I not lose capital, as opposed to doing all I can to increase it) and re-balanced a bit but am compelled to reevaluate whether I want to start fighting this market from the short side. Yesterday’s close in tech stocks seemed like a warning against that. Active bears were right in 1999 but they were dead by the time they were proven right.

Several sectors remain technically bullish (with tech already manic), after all. So my plan is to use cash as a risk manager, keep an open mind and stick with the rotation theme. As an example of that, if interest rates spike again, favor Financials; if they drop, favor Utilities, Biotech and even Treasury bonds. All the while waiting on the USD bounce scenario (i.e. will it prove out or fail?).

Commodities

It is just another bounce, technically, although Copper/Industrial metals and certain outliers (Lithium, REE and lately, Uranium miners) have a bullish look to them. If USD bounces hard, commodities will likely drop again. If it fails major support these things could finally unchain from the downtrend. I am still with the USD bottom and rally scenario until it fails (like a captain going down with his ship). We will soon see whether the big spikes in the Canada and Australia dollars were a positive divergence for commodities in general. A USD breakdown and ramping commodities would be a big part of the ‘inflation trade’ we have been talking about (as part of this, I’d expect rising long-term yields and potentially, bullish Financials/Banks). But Uncle Buck has not yet broken down even as he clings to support with white knuckles.

Of note here regarding a would-be ‘inflation trade’, both the yield curve and the TIP/IEF ratio (inflation expectations gauge) have eased this week. They would rise if they were to indicate an inflationary situation.

Precious Metals

I wrote a post clarifying the Commitments of Traders in gold and silver, which is now bullish on a risk vs. reward basis. I want to be clear however, that I am not technically bullish on gold, silver or the average miner (per HUI, XAU and GDM indexes). I cannot possibly be because the daily and weekly technicals are down trending.

So while there are bullish inputs to the picture (including the bullish divergence by several individual miners, explorers and royalties), I must be a TA robot if I am going to be effective for us. I must also be a macro fundamentalist. Facebook, Amazon and Netflix breaking to new highs and an intact and up trending stock market argue against the important ‘gold vs. stock markets’ fundamental. I see a source out there talking about how Trump protectionism and other global tensions will kill the economy, bring on deflation, drive gold and instigate a new bull market in the miners. But why don’t we not over-intellectualize and at least see the first signs of a crack in the macro picture before becoming avid gold bugs?

Bottom line: The CoT have improved, but still have wiggle room to improve even more (or with the recent sector bounce, might they have even backed off a little?). The macro fundamentals, including yield dynamics, are not yet in line. The technicals on gold, silver and the average miner are not bullish. But risk vs. reward is improving. My preferred scenario would be for an ‘!‘ to come about in the form of a final washout of this ‘watching paint dry’ backdrop. Risk vs. reward (positive, w/ a long-term view) and price are not the same thing in the shorter-terms.

With our long held theme that this sector is “in the mirror” to the great US stock bull, if we are going to have patience before fighting that bull, why not have patience in sponsoring a precious metals bull?

That’s how it looks on Wednesday morning in a fast moving market with often contrary signals coming in. We’ll update and refine the process in-week and in weekend reports as usual.

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